With the rising costs of healthcare — both for physicians and patients — consolidation in the healthcare business is on the rise with no end in sight. For the physician, rising operating costs and declining reimbursements are forcing many physicians to reevaluate their business model. For a medical practice, the changes due to healthcare reform and the rising administrative costs, many independent practices are being forced to merge or with other practice to gain leverage and market share or sell to the hospital. Most physicians want to maintain autonomy but this is inconceivable in the hospital employed model. Forming a large single specialty or multi-specialty group is our recommendation and we have the tools and expertise to guide you through this process.
We have years of experience in the medical practice management industry, and have consulted and helped run successful, independent practices as expand their business. We can conduct a thorough valuation of a medical practice and negotiate mergers and acquisitions (M&A) of the same, all the while keeping the interests of both parties involved at heart.
If mergers and acquisitions scare you as a practice owner, consider the positives. Consolidation is sometimes a wise move in order to stay in business, or manage it better. If your practice gets acquired by a bigger hospital, physicians and hospitals can work better together in accomplishing improved outcomes and consistency. Nowadays regulatory pressures also encourage physician groups to seek hospital employment and ownership of practices. From the employee satisfaction standpoint, everybody wants a better work-life balance and reasonable workloads that are more feasible in a hospital employment relationship. Working for a larger firm means that the physicians need only focus on medicine and quality of treatment, leaving the hospital management to handle the business side of practice.
If you are still thinking your practice will be fine, consider the ever-changing economics of doing business in today’s healthcare industry. Hospitals are in the midst of acquiring other facilities in an effort to create Integrated Delivery Systems in order to capture market share and sufficiently control costs. Due in large part to the ACA, hospitals are scrambling to meet the quality measures, improve efficiency and mitigate the loss due to lower admissions and decreased reimbursements. In order to deliver the breadth and depth of healthcare services necessary to be remain competitive, they must secure their supply of primary care and specialty service providers. Many health systems, therefore, are choosing to acquire and employ physicians to fill that supply of providers. At the same time, private practices are facing declining reimbursements and rising operating expenses. Many see consolidation as a good way to achieve operating economies of scale, and improve their bargaining power to negotiate more favorable managed care contracts.
From our side, as negotiators, some of the factors we take into consideration when overseeing an M&A deal is doing a thorough review of the internal and external factors of the parties involved. Does the practice or the acquirer have good credit and low debt? Is there enough capital to continue to grow, invest and compete? How is the leadership? Are they competent enough to make good business decisions that work for the physicians?
That said, the biggest concern among physicians considering a merger or being acquired by a bigger group, is the loss of autonomy and their decision-making ability. Next comes compensation and how earnings are managed. Changes in physician compensation are often times the most controversial decisions for merging groups. Then there’s staff retention, their benefits and compensation. When consolidating, each division must offer consistent benefits when it comes to health insurance and 401k. Every merger is different, and as such, each have their unique obstacles that must be addressed and overcome.